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‘I was too ambitious’, says Spotify CEO as tech giant cuts 6 percent of workforce

Spotify founder Daniel Ek said he had been 'too ambitious' as the Swedish streaming giant on Monday announced it is cutting six percent of its approximately 10,000 employees.

'I was too ambitious', says Spotify CEO as tech giant cuts 6 percent of workforce
Spotify's headquarters in Stockholm. Photo: Magnus Hjalmarson Neideman/SvD/TT

The company did not specify where the cuts will be made.

“In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by about  six percent across the company,” Spotify chief executive Daniel Ek said on Spotify’s official blog.

“I take full accountability for the moves that got us here today,” Ek added.

The 39-year-old CEO added that over the next several hours “one-on-one conversations will take place with all impacted employees.”

He said HR business partners are working with employees whose immigration status is connected with their employment.

Shares in the Sweden-based company, which is listed on the New York Stock Exchange, rose over 4.5 percent following the announcement in out-of-hours trading.

Spotify has invested heavily since its launch to fuel growth with expansions into new markets and, in later years, exclusive content such as podcasts.

It has invested over a billion dollars into podcasts alone and raised hackles last year as it signed a $100 million multi-year deal with controversial star podcaster Joe Rogan.

The company has never posted a full-year net profit despite its success in the online music market.

In 2017, the company had around 3,000 staff members, more than tripling the figure to around 9,800 at the end on 2022.

It planned to reach 479 million monthly active users by the end of 2022, including 202 million paying subscribers and is targeting one billion users by 2030.

“While I believe this decision is right for Spotify, I understand that with our historic focus on growth, many of you will view this as a shift in our culture,” Ek said.

‘Unsustainable’

To offer perspective, Ek noted that the growth of the company’s operating expenditure had outpaced revenue growth by a factor of two.

“That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap,” Ek said.

The company’s annual turnover reached 9.6 billion euros ($10.4 billion) in 2021.

Reporting its third quarter earnings in October, Spotify said it had 456 million monthly active users, of which 195 million were paying subscribers – who account for the majority of Spotify’s income.

In recent months, tech giants such as Google parent company Alphabet, Facebook-owner Meta, Amazon and Microsoft have announced tens of thousands of job cuts as the sector faces economic headwinds.

On Friday, Alphabet announced it would cut 12,000 positions, just a day after Microsoft announced a cut of 10,000.

The cuts in the tech sector follow a major hiring spree during the height of the coronavirus pandemic when companies scrambled to meet demand as people went online for work, school and entertainment.

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WORKING IN SWEDEN

EXPLAINED: Why Sweden’s unions are asking for a four percent real pay cut

The Swedish Trade Union Confederation in November set its starting bid in the coming salary bargaining round so low that it is effectively asking for a four percent real pay cut for its members. We explain why it is willing to do this.

EXPLAINED: Why Sweden's unions are asking for a four percent real pay cut

What’s happening? 

Next month, Sweden’s unions will start salary talks with employers as the 2023 collective bargaining round kicks off. Ahead of the negotiations, representatives of the 14 unions that are members of the Swedish Trade Union Confederation (LO) met in November at its Stockholm headquarters to agree on “the mark”, or märket, the percentage pay rise demand which will set the base for negotiations with employers. 

On November 19th, 13 of the 14 unions agreed to propose a mark of 4.4 percent, something Thomas Carlén, one of the LO economists who did the research that fed into the agreement, told The Local represents a significant real pay cut. 

“Our forecast is that the inflation rate will be very high next year, but it will also decrease from its peak in the first quarter, but on a yearly basis, this will probably lead to real wage decreases of about 5 percent, or 4 percent.” 

As well as the 4.4 percent increase, the unions also agreed to push for extra support for those earning less than 27,100 kronor a month. 

So why aren’t unions asking for compensation to match current high inflation rates? 

Unions are holding back partly to avoid fueling a so-called wage-price spiral, where nominal wage increases are eaten up by price rises, leaving real wages stagnant. 

“If we get wage-driven inflation, it’s going to be those on the absolutely lowest salaries who end up being the losers,” Susanna Gideonsson, LO’s President, told Swedish news agency TT at the end of December. 

She pointed to the situation in the 1970s and 1980s when Sweden’s unions fought for inflation-busting pay rises only to end up generating ever higher inflation. 

“We have tried to go that way and we have lost as a result of it,” she told TT. “Those who earn the least take the biggest hit. This is about getting real, long-term pay increases.”  

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What system does the Swedish Trade Union Confederation use to set wages? 

According to Carlén, after the high inflation of the 1970s and 1980s, LO brought in a new system in 1997, which sets the “mark” for negotiations with reference to  the Swedish Central Bank’s inflation target of 2 percent, rather than with reference to the actual level of price rises in the economy.  

“We have this model, as we love to say in Sweden,” he said.  “And in this model we normally calculate the room for wage increases as the inflation target, plus productivity growth, and that will be maybe three and a half percent.”

The unions also benchmark wages in Sweden against those in competitor countries, keeping a particularly close eye on wage developments in Germany, to make sure that Swedish exporters remain competitive. 

Between 2010 and 2020, when monthly consumer price inflation in Sweden was frequently under 1 percent and rarely rose above 2 percent, this model provided most workers in the country with more generous pay rises than their counterparts in many other European countries. 

“That’s what we’ve been doing for 25 years and it was a good thing for the trade unions when the actual inflation rate was almost always lower than the target,” Carlén told The Local. “The business sector always said ‘no, you shouldn’t use the inflation target, you need to calculate the actual inflation rate, which was sometimes 1 percent of 1.5 percent.”

Because the unions insisted on using the inflation target then, they now want to defend the model by continuing to do so even if it means a few years of declining real wages. 

“We have decided to continue doing it this time, even if it is not the most beneficial thing for our members this time, since this model has been quite successful for 25 years,” Carlén said. “We have had higher real wage increases in Sweden than in most other countries since 1997, so we think that this model works.” 

If the unions shifted to using the real inflation rate this time around, he added, they would “risk this model for the future”. 

So what happens next? 

Industrial employers, who the unions in November agreed be the first to enter salary negotiations, at the end of December proposed a pay rise of just 2 percent, together with a one-off payment to employees of 3,000 kronor, far less than LO’s mark. Sit-down talks between industrial unions and employees will begin properly next month, with a view to setting the final agreed “mark” in April. 

Once all the central agreements have been made between the unions and the employer organisations, there will then be a second stage of negotiations between unions and individual employers, at which point salary rises generally increase a little further. 

“In the local wage negotiations you usually get some wage drift, so if the mark is set at 4.4 percent, maybe the actual wage increases will be 4.8 percent or 5 percent,” Carlén explains. “If the ‘mark’ is considered to be low, some groups on the labour market, which usually are the white collar workers, might manage to get more in local wage negotiations.” 

So will there be strikes? 

Sweden’s unions have in recent decades been much less likely to take to the picket lines than those of most other countries, but that does not mean it can’t happen. 

“We usually don’t need to go on strike that often in these wage negotiation rounds,” Carlén said. “But you never know. This time is very tricky, so we can always use the strike weapon and we will if they will not meet our demands.” 

The Swedish Transport Workers’ Union was the only one of the 14 LO member unions not to back the 4.4 percent proposal, which means they may seek a higher rise for their members, increasing the risk of a conflict with transport operators. 

In addition, Gideonsson, LO’s President, is insisting that the leaders of companies, municipalities, regional health authorities and government agencies also keep their salary rises well below the inflation rate, warning that if they fail to do so, “then we can reckon with a much more difficult collective bargaining round”. 

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